Group Lending or Individual Lending? Evidence from a Randomised Field Experiment in Mongolia
University College London - Department of Economics; Institute for Fiscal Studies (IFS); Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)
Institute for Fiscal Studies (IFS); UNU-MERIT
Ralph De Haas
European Bank for Reconstruction and Development
Institute for Fiscal Studies (IFS)
European Bank for Reconstruction and Development (EBRD)
December 19, 2011
EBRD Working Paper No. 136
Although micro-finance institutions across the world are moving from group lending towards individual lending, this strategic shift is not substantiated by sufficient empirical evidence on the impact of both types of lending on borrowers. We present such evidence from a randomized field experiment in rural Mongolia. We find a positive impact of access to group loans on food consumption and entrepreneurship. Among households that were offered group loans the likelihood of owning an enterprise increases by 10 per cent more than in control villages. Enterprise profits increase over time as well, particularly for the less-educated. For individual lending on the other hand, we detect no significant increase in consumption or enterprise ownership. These results are in line with theories that stress the disciplining effect of group lending: joint liability may deter borrowers from using loans for non-investment purposes. Our results on informal transfers are consistent with this hypothesis. Borrowers in group-lending villages are less likely to make informal transfers to families and friends while borrowers in individual-lending villages are more likely to do so. We find no significant difference in repayment rates between the two lending programmes, neither of which entailed weekly repayment meetings.
Number of Pages in PDF File: 48
Keywords: microcredit, group lending, poverty, access to finance, randomized field experiment
JEL Classification: 016, G21, D21, I32working papers series
Date posted: December 21, 2011
© 2013 Social Science Electronic Publishing, Inc. All Rights Reserved.
This page was processed by apollo8 in 0.375 seconds